There are many valuation methods used by the Cards & Payments M&A crowd, and their permutations are endless. Nevertheless, in our 35 years in credit card M&A practice at R.K. Hammer, there are a few most-favored methods that we highlight here.
First, one we use most often, our proprietary “ROA Earnings-Multiple.” Based upon our experience in 172 such deals; valuations and actual done deals out of the industry’s 851 total in the past 3 decades for our 20% market share. It is the only method that uses real sale/purchase prices, unnamed/undisclosed comparables, not theoretical ones. The confidential algorithms and protocols are our own and not made public. If any M&A pro has a similar range and history of experience, you and perhaps only those like you can develop your own ROA “Earnings-Multiple”; i.e., the years of proforma pre-tax card portfolio earnings a Buyer could pay to be the winning bidder.
We then move on to a second valuation method, one that seems to have the favor of card issuers, both Buyers and Sellers, “DCFA,” Discounted Cash Flow Analysis. In valuation dispute Expert Witness appraisals, we also use this one if instructed as a requirement of representing one party or the other in such disputes. Otherwise, we tend to prefer the ROA Earnings-Multiple. With DCFA, due to myriad set of assumptions and the belief that using a perpetual life span factor for the assumptions required may produce widely differing valuations. We readily concede its use by the M&A world and importantly standardizes the multiple appraisal process, but its use is not on actual recent current/comparable prices. If you have the personal knowledge of real prices in real world recent deals, may we suggest at least considering your own “Earnings-Multiple” approach, but only if your client first agrees that is an acceptable contractually permissive alternative.
Third, another method is a “Cost-per-Acquired Account” (or “Active” Account) approach. Like other models, each credit card product segment has separate valuations & P’L’s, and appraisal protocols; for example, for consumer vs. commercial card accounts, Super Prime, Prime, Near Prime, and private label and prepaid, all have differing P/L’s. We tend to use CPAA as a litmus test of sorts for checking the reliability of the earlier Earnings-Multiple model, but never use as a stand-alone methodology.
The last deal pricing for Mega Deals, whole institution/platform deals, is how many shares and the price per share used as the benchmark sale/purchase price for the transaction. This avoids the use of a resulting more customary “Premium” calculation typically used in the first three methods shown above. In our experience with valuations/card deals, though, only a few Mega Deals used this method; it is still cited, though, as in 2006 and 2025.